Gov. Dayton signs off on Enviro Trust Fund raid!

by Trevor Russell

May 30, 2018

In the closing hours of the session, the legislature passed a bonding bill that included perhaps the single worst environmental provision of the year: a massive raid on the state's environmental trust fund.

In a major defeat for Minnesota's environment, Gov. Dayton has signed off on the move. Here's what happened.

The origins of the trust fund raid

As we noted recently, the House and Senate’s modest $825 million bonding proposals were initially too small to fit $47 million in much-needed funding for wastewater infrastructure across the state.

Given Gov. Mark Dayton’s request of $1.5 billion for bonding, we had hoped legislators would increase the size of the bonding proposals to include money for municipal wastewater projects.

Rather than draft a larger bonding bill, legislators instead made a stunning proposal: take the money out of the Environment & Natural Resources Trust Fund (ENRTF).

Bad to worse

Sadly, efforts to remove the language failed spectacularly, and the raid ballooned to $98 million in the final bonding bill sent to the governor.

Anatomy of a terrible idea

This raid on dedicated environmental funding is a terrible idea for eleven reasons:

Raiding environmental funds: The interest costs alone on $98 million worth of appropriation bonds could exceed $60 million in additional costs to the ENRTF, denying much-needed funding for environmental projects across the state. Given that state general fund money for the environment is already at historic lows (about 1%), further raids on environmental funding are unacceptable.

Expressly prohibited under the law (1): This proposal is illegal substitution. State statute clearly states that "...The trust fund may not be used as a substitute for traditional sources of funding environmental and natural resources activities." Debt service on bonding projects has always been paid for out of the state’s general fund, making this a clear case of substitution.

Expressly prohibited under the law (2): State statute prohibits ENRTF money from being used for municipal wastewater treatment. The bonding bill claims millions in ENRTF money for just that purpose.

Expressly prohibited under the law (3): State statute prohibits ENRTF money from being used for hazardous and solid waste disposal facilities. The bonding bill claims $6 million in ENRTF money for the Anoka Landfill despite this specific prohibition.

Expressly prohibited under the law (4): State statute requires that ENRTF money be spent according to a state commission's six-year strategic plan for making expenditures from the trust fund. Notably absent from the current strategic plan: $98 million to pay back state appropriations bonds (plus $60 million in interest).

Higher interest rates: Why pay more? The ENRTF is funded by future lottery money and is not backed by the full faith and credit of the state, so it comes at a higher interest rate. Meaning we all pay more for the same projects.

Sets a terrible precedent: There is absolutely no precedent for dedicated environmental funds being used this way. Once this precedent is set, every dedicated fund in the state becomes at risk for legislative raids in future years.

The payback period is longer than the life of the trust fund: This proposal raids the fund until 2040, though the fund's revenue source constitutionally expires December 31, 2024.

No public process: The proposal was never vetted by the public nor brought before the Legislative-Citizen Commission on Minnesota Resources (LCCMR), the body charged with evaluating proposals for the ENRTF.

We could just bond for it: The state budget office has concluded that Minnesota can afford a bonding bill in excess of $3 billion this year. The House & Senate asked for just $825M. The House and Senate could simply have increased the size of their bonding bills instead!

We have a state budget surplus: The State of Minnesota has a considerable budget surplus and could have funded all of this with cash if it so desired.

In summary, this was an eleventh-hour, unvetted and impractical proposal to borrow for projects at higher interest rates from a dedicated environmental fund in violation of precedent, common sense and state law (4 times over) despite both an existing state budget surplus and lower-cost traditional borrowing alternatives.

Line-item veto request

Gov. Dayton signs off

On Wednesday, May 30th, Governor Dayton signed the bill without using his line-item veto authority to remove these provisions. In the Governor's letter to House Speaker Kurt Daudt he states that "the Legislature shamefully subverted the prescribed Legislative-Citizen Commission on Minnesota Resources (LCCMR) process by adding projects that did not go through the LCCMR's rigorous process of review and recommendation." Dayton also urged "future Legislatures to immediately correct this travesty and restore the integrity of this 30-year old fund for future generations." Unfortunately, despite his strong objections the Governor allowed this raid to become law.

FMR and our allies are extremely disappointed that legislative leaders and the governor failed to protect the Environment & Natural Resources Trust Fund.

What now?

As a result of the Governor's signature, more than $98 million dollars, plus an estimated $60 million in interest costs, will be diverted from this voter-approved fund over the next 20 years to pay for bonding dept on state projects, some of which the trust fund is constitutionally prohibited from funding.

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You can learn more about how Minnesota's environment and the Mississippi River fared this legislative session at our River Guardians happy hour, June 5.